The Apple iPhone will only ever be a bit player. What's next?

Link: Report: iPhones piling up at AT&T stores | One More Thing – CNET News.com

Is demand for the iPhone in America already starting to wane?

AT&T, the exclusive American carrier of the iPhone, activated just 900,000 iPhones during the fourth quarter, the company revealed during its earnings conference call Thursday. It wrapped up the year with “just at or slightly under 2 million iPhone customers,” according to company executives.

It’s absolutely fascinating watching this industry from the sidelines. On one hand, we’ve got CNET reporting that it looks like iPhone sales are on the slide with ‘significant amounts of inventory in channel’.

On the other hand, you’ve got the man-on-the-street. I’ll point to the personal trainer, Kevin, as an example. I’ve hired him to help me get in better shape over the past few weeks whilst I’ve been in San Francisco. He loves the iPhone — he’s a real fan, but he just.can’t.justify the expense. I think he’s right. I asked him to take me through his justification points and as I jogged along listening and firing questions, I recognised the unfortunate yet sad reality of Apple’s current position.

Why sad? Well, Kevin is a Mac guy. He’s an Apple consumer — precisely the mainstream target audience that Mr Jobs was no doubt imagining when he chalked up his public ’10 million iPhones’ target at MacWorld last year. Kevin’s got a PC, but he prefers using his Powerbook. He’s considering upgrading to Leopard. He’s pretty savvy with the internet — and he’s not that content with his current handset. Kevin is grade-A Apple fodder. He’s already converted.

But for the price and service delivery.

He’s not impressed that the device isn’t 3G. He’s done his research. He’s not an impulsive geek-arse like me. Kevin sat back, looked at the iPhone offering — liked the device — but found the ‘deal’ wanting. 2G (or 2.5g depending on your viewpoint) device, 3G AT&T network = not smart. He’s concerned about buying an iPhone *now* on a stupidly long contract only to find that Apple releases a 3G version soon after.

And when he sits back and evaluates the pricing plan… it just doesn’t quite work. He’s totally content to pay premium. But not THAT premium. Not geek premium. If he could buy one for $400, and ONLY $400, he would — but not with the endless and highly priced contract service plan that isn’t very competitive to what he’s got at the moment and what he’s comfortable with.

I think that’s it, then, with the iPhone.

The SDK will come along and it’ll be good news. We’ll see a plethora of wicked applications launched, I’m sure, provided Apple don’t screw it up.

However I think that’s it. A new strategy is required.

The geeks have all bought one and many have got theirs unlocked. The Nike wearing Soho crowd have splurged the cash. The wannabes and the I-must-have-that crowd have weighed in, swapped networks and got their devices. But that’s it. There’s a ton of people all sitting staring at the iPhone and — SADLY — (this is the bit that’s winding me up), turning their backs and walking away. I could name you 20 people, right now, that I know personally, who WOULD have an iPhone if they were marketed at a more reasonable price — 100 pounds maximum — and were unlocked to work on any network. But those 20 people won’t. They’re staying exactly where they are, back in the old world. Or, actually, back in the real world.

Nokia, Samsung, LG, Sony and HTC (and, er, the Google offering) are safe. The iPhone, on the current trajectory, will only ever be a number 4 or number 5 device.

It’s back to business as usual. Everyone can breathe a sigh of relief. 2007 was a challenging year for the manufacturers and operators faced with the uncertain Apple issue. With China Mobile flatly saying ‘no thanks’ to the iPhone (and no wonder, given what Apple were reportedly demanding), the future is clear. The manufacturers got a kick up the arse and I’m delighted to see the revolution underway. All of a sudden, devices are sexy again and there’s real innovation going on. Just look at Motorola, forced to innovate, it’s bringing out some really good handsets. Whether you’re a fan or not (and historically, I’ve been unimpressed with the continual rebranding of the RAZR, KRZR and so on), they are innovating and pushing things forward. Excellent.

I think we saw a measurable shift in the United Kingdom due to the iPhone. The worst fears of mass migrations that I reported back in the last quarter haven’t fully come to pass. Two different operators I spoke to reckoned they stood to lose ‘hundreds of thousands’ of customers. I’m sure there’s been a dent. Bearable though. Totally bearable, especially when the vast majority of your subscriber base has no doubt weighed, measured and found the iPhone offering wanting.

The impact of the iPhone has been seismic. But continuing along the current strategy will simply reduce the influence to a mild echo in a few years.

You’re in serious, serious trouble when your biggest fans — the (perhaps stupid?) legion of millions who buy Apple computers and associated products — decide NOT to buy the iPhone. Part of the whole iPhone buzz was based upon laptop logic. That is, if you’ve got an Apple laptop, you’ll definitely get an iPhone, no question. Then your friends who’re all currently PC based will notice the iPhone and naturally want one themselves — and simply go and buy an iPhone.

Well it’s not that simple. You can simply-buy-an-Apple-laptop. There’s no continual contract, there’s no lock-in, there’s no monthly fee structure. You just plonk $699 for the MacBook and you’re a certified Apple convert. No-can-do with an iPhone.

Or, if you’d like an even simpler example of how screwed Apple’s current iPhone strategy is, think iPod, for a moment. Think about the MILLIONS of people who’ve bought iPods. The iPhone is a natural upgrade path, particularly if you’re even half interested in your mobile handset. Now, some people obviously enjoy the iPod or the iPod Touch on it’s own and that’s fine, that’s one particular segement. Logic (along with anecdotal and, I think, pretty reliable personal experience) dictates that a whopping amount of customers would upgrade to a similarly priced iPhone. But haven’t.

How depressing.

Been into an Apple store of late? Go in, next time you’re passing — and watch. Watch for the tens or hundreds of people (at the weekends in busy shopping centres) crowding around the iPhone stall. They’re all peering. They’re all enjoying. They’re all oohing and ahhing and pressing buttons.

They’re not buying.

But they would.

They would buy. It’s traditional Apple pricing — at say 400 dollars or 269 UK pounds — a status price point. It’s a point that affords status to anyone who buys it — but is (as is proven by the millions of iPod sales) well within the gift and credit-card-impulse-purchase-budget of the masses.

The masses are having none of it. Once you’ve sold to the ultra geeks and the fashionistas, who else is left? By all means, 500,000 sales in every international territory wouldn’t be bad. It’s no small amount of recurring revenue. You need to get it into every territory though and the operators aren’t, by any means, playing ball. You can see just how bad it is when o2’s having to reassure it’s shareholders with stupid press releases to dumb Financial Times journalists.

The report highlighted that ’60 per cent of the company’s iPhone customers in the UK were sending or receiving more than 25 megabytes of data a month’ and continued:

By comparison, less than 2 per cent of O2’s other UK customers on monthly payment contracts use more than 25MB a month.

First of all, the iPhone comes with unlimited data so you’d expect most users to give it a go since it’s not costing them a whopping 3 or 4 quid per meg of data. Which, coincidentally, is what the great unwashed — the normal ‘other UK customers’ have to pay for their data. So duh.

This kind of stupid reporting, together with the constant rumours I keep hearing and reading about iPhones gathering dust in warehouses and o2 stores across the land in the UK, doesn’t bode well.

Is that saturation point for the iPhone then? They’ll continue to convert a small percentage of “Ok, ok then, I’ll pay,” consumers — but the vast majority, my trainer Kevin included, are going to sit on the sidelines and carry on playing with their Nokias, Samsungs, LGs, Sonys, Motorolas and their own network of choice.

The market dynamics are in flux. There’s a big change in the air. We’ve all seen Mary Poppins, right? You know how she comes and goes at key points during the story, ‘when the wind changes’, well… the wind’s changed already and it’s time for a change. That is, if the iPhone is intended to be ubiquitous.

If the intention is to do-a-MacBook (bite off a small chunk of a huge, huge industry) then no problem. Steady as she goes. Perhaps that’s been the plan all along? Just to participate, just to have a seat at the table?

I myself was hoping for a revolution. I was hoping to see the iPhone garner 20, 30 or 40% market share of the handset marketplace. That would make development of applications so much easier, particularly with an SDK as powerful and as easily accessible as the reported one due out shortly — which, in turn, would significantly boost the worldwide mobile industry and really, really require the incumbent players to take off their gloves and get stuck in.

I’ve made that change in my mind now. I think it’s time we all did (if you haven’t already and kudos to you if you saw it coming a mile away) — the iPhone will, on current strategy, only ever be a bit player. It’ll always be a gorgeous, brilliantly conceived device. Phenomenal.

But, thanks for coming, Apple. Thanks very much for that.

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